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Calpine Facing $5.5B in Noncash Impairment Charges

Bankrupt generator Calpine Corp. last Monday said it expects to record $5.5 billion in non-cash impairment charges for the twelve months ending Dec. 31, 2005. Also, the company expects to record additional noncash valuation allowances of $1.6 billion against deferred tax assets, which will be reflected in the tax provision for 2005.

The company concluded that the charges were necessary due to multiple factors, including constraints arising as a result of the company's bankruptcy filing on Dec. 20, 2005. The charges reflect the company's prior assessment, reported in December 2005, that material impairment charges for the period ending Dec. 31, 2005 were likely. These noncash charges will not impact Calpine's liquidity position.

Calpine noted that it continues to take action to stabilize and improve its business. In February, Calpine announced that it was taking action to strengthen its operations, reduce operating costs and focus on its core business -- power generation.

Calpine in early April announced additional steps to reduce costs and address assets that are no longer considered part of its core operations. Calpine said it plans to sell about 20 power plants and cut its workforce by 775 (see NGI, April 10).

"Calpine can no longer conduct business as usual," said Robert May, Calpine's CEO, in a prepared statement issued on Monday. "We're taking the tough but necessary actions to rebuild our company while focusing on the core power assets and markets where we can best compete. We believe the new Calpine will be leaner and more focused -- and ultimately a more competitive and profitable power company. Near-term, our goal is to achieve positive cash flow in 2007. And we're taking the right steps to get there -- optimizing our power portfolio, reducing operating and interest costs, and streamlining our organization."

Calpine filed a Form 8-K with the Securities and Exchange Commission (SEC) providing further information on these impairment charges, a copy of which is posted on Calpine's web site at under "Investor Relations."

The company will also be reporting additional information on its operations and 2005 year-end financial results in its annual report on Form 10-K, which the company expects to file soon with the SEC.

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